NCPA - National Center for Policy Analysis

Value Water At Market Rates

August 17, 1999

With a number of states in the Northeast slapping on water restrictions to compensate for this summer's drought, the question once again arises: how much is this sometimes scarce, sometimes abundant commodity worth? Experts reply that we can answer this question only when supply and demand are allowed to operate -- in other words, when there is market pricing.

  • A can of soda costs roughly the equivalent of 2,500 eight- ounce glasses of water.
  • A 1998 survey by the American Waterworks Association revealed that 39 percent of the 60,000 public water systems in the U.S. charge uniform rates -- meaning that consumers pay the same rate per gallon no matter how much they use.
  • Thirty-three percent encourage waste by offering volume discounts.
  • Among the 22 percent of utilities that charge higher rates to those who use more water, prices are typically set well below the social costs of the water supplies.

Experts say it only makes economic sense to charge more for water during periods of summer drought -- but only 2 percent of utilities practice seasonal pricing. And virtually none have adopted systems that would allow water rates to rise automatically as reservoir levels fall.

Source: Robert N. Stavins (Kennedy School of Government, Harvard University), "How to Stop Squandering Water? Raise Its Price," Washington Post, August 14, 1999.


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